Brocade falls as federal spending slashed

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Brocade fell off a cliff on Friday after the company slashed its earnings forecast due to lower product demand and spending cut backs at federal agencies. The company now sees Q3 EPS coming in at $0.08-0.09 on revenue of $500-505 million, down from $0.10-0.11 on $540-560 million previously forecast and below consensus estimates of $0.11 on $550.9 million.

Canaccord Genuity Technology Analyst Paul Mansky notes that total OEM inventory on hand last quarter was 2.5 weeks, in the lower half of the range, but up half a week sequentially, and he suspects Hitachi (HIT), which was a 10% customer for the first time in April, contributed. He also notes that a July fade in Federal, which was widely expected to be brisk in the second and third quarters post the April budget approval, could be a drag on the results. Mansky says that technically, the credit ceiling debate should not have had an impact, but he suspects it contributed.

On the back of the poor showing, Mansky is reducing his July quarter estimates to the lower end of the pre-announced range, seeing EPS of $0.08 on revenue of $501 million versus his prior estimate of $0.11 on $550 million.

Brocade (BRCD : NASDAQ : US$3.52), Net Change: -1.37, % Change: -28.02%, Volume: 88,810,498

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Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

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